Johnson & Johnson CFO: Synthes deal doesn’t mean we’re done

Johnson & Johnson (NYSE:JNJ) may have just dropped a cool $21.3 billion to acquire Synthes (SWX:SYST.VX), but it doesn’t mean the health products giant is done shopping for deals.

“Although we just did a pretty significant deal, it doesn’t preclude us from doing another one,,” CFO Dominic Caruso told an investor’s conference in Boston. “We want to be able to act.”

In late April, J&J agreed to pay 55.65 CHF in cash (about $2 billion up front) and 103.35 CHF worth of its own stock in exchange for each Synthes share. But the final exchange rate will be between 1.7098 and 1.9672 JNJ shares for each Synthes shares, provided J&J stays between $68.62 and $59.64 (60.45 CHF and 52.54 CHF). The deal is the largest in the history of the New Brunswick, N.J.-based health care conglomerate and is expected to close during the first half of 2012.

Caruso said the impact of the deal will be “modestly dilutive by about 1 to 2 percent.”

“As we integrate the business that dilution will get lower. It will last for a few years, but it will be a very minor impact,” he said, adding that Johnson & Johnson had long admired the Swiss orthopedic device maker and was confident that the buy was made during favorable market conditions.

“The time happened to be right,” Caruso said. “The markets are at a particularly low point in growth and pricing, but we don’t think that’s a long term situation. We think the orthopedic market will recover.”

The orthopedic trauma business hasn’t experienced the same volume and pricing pressures as spinal, knee and hip procedures, he noted, because most of those procedures are done on an emergency basis. Synthes is particularly strong in the trauma business; Caruso pointed out that the company is very active in realizing new products.

“The strength of Synthes is really extraordinary in new products,” he said. “Seventy percent of sales last year were in new products.”

While J&J is obviously bullish on the Synthes deal, its competitors have been predictably cautious about thae impact of the new 800-pound gorilla in the orthopedic market.

“Trauma was a relatively weak area for J&J, with low- to mid-digit market share,” said Katherine Owen, the vice president of strategy for Stryker Corp. (NYSE:SYK). “The rationale of the deal makes sense.”

But, cautioned Owen, “it’s going to be a complex acquisition. It will take time to work through the issues with the FCC. And whether Synthes is a stronger competitor as part of J&J will take a number of years to play out.”